Are you ready for the strategic report? | Annual report copywriting

Last November, the government published its proposals to reform narrative reporting for UK quoted companies. The new regulations to bring this into force were finally laid before Parliament last week and were pretty much as expected, except they now include requirements to report greenhouse gas emissions which had been subject to a separate consultation process.

So what do the regulations do?

The regulations replace the business review with a strategic review. The requirements for the two are very similar but quoted companies will now have to include the following in the strategic review:

a description of their strategy

a description of their business model

a breakdown by gender of the numbers of directors, senior managers and employees at the year end (the regulations include guidance on who qualifies as a senior manager), and

the company’s human rights policy, plus information about its performance.

The directors’ report will also have to include information on greenhouse gas emissions, although in reality most companies will probably disclose them in the strategic review and cross-reference them.

The regulations say that the report must state the annual emissions in tonnes of carbon dioxide equivalent from:

activities the company is responsible for, including combustion of fuel and operating facilities, and

the company’s purchase of electricity, heat, steam or cooling for its own use.

Interestingly, the government has adopted a supply-or-explain approach here. Companies only have to disclose this ‘to the extent that it is practical for the company to obtain the information’. If it’s not practical, the report must state what information is not included and why.

When do the regulations come into force?

As expected, they apply for years ending on or after 30 September 2013. That means the 2013 December year ends will be the first significant tranche of companies affected.

Who do they apply to?

The requirements above only apply to quoted companies. AIM companies are not classed as quoted but they would be well advised to take a lot of this on board, given the woeful standard of many AIM annual reports.

What else is interesting?

The strategic report can be sent to shareholders who previously got a summary financial statement. If companies do this, they will need to include some additional information. Most of this is technical stuff about audit reports and how to get hold of a full annual report. The one substantive change is that quoted companies will need to include a table showing the single figure for remuneration for each of the directors.

What’s next?

We’re still waiting for guidance from the FRC as to how companies should implement the strategic report. This should be out very soon and will hopefully give companies a lot more clarity about how to describe their business models – something that remains a real weakness even in many FTSE 100 reports.

The other imminent change is to the regulations on reporting directors’ pay, of which the single figure is part. This is expected shortly, given that it will come into force at the same time as the new narrative reporting regime.